Figure 10-4 ____ 43. Figure 10-4 shows the industry\'s supply and demand curves
ID: 1202910 • Letter: F
Question
Figure 10-4
____ 43. Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S1, the firm is
a.
shut down.
b.
incurring losses.
c.
earning zero economic profits.
d.
earning economic profit greater than zero.
____ 44. Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S2, the firm is
a.
shut down.
b.
incurring losses.
c.
earning zero economic profits.
d.
earning economic profit greater than zero.
____ 45. Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2). At S3, the firm is
a.
shut down.
b.
incurring losses.
c.
earning zero economic profits.
d.
earning economic profit greater than zero.
a.
shut down.
b.
incurring losses.
c.
earning zero economic profits.
d.
earning economic profit greater than zero.
Explanation / Answer
43. d. earning economic profit greater than zero.
Price is greater than the AC and AVC. It means that firm is able to cover all its costs and sell the product at higher price. So, firm is earning economic profit which is greater than zero as price is not equal to AC while it is greate than AC.
44. c. earning zero economic profits.
When price is determined by the S2 curve then it is equal to the AC of the firm which means that firm is just able to cover all its cost so firm is neither earning positive profit nor suffers a loss. It is a situation of normal profit where P = AC of firm so at this point firm earning zero economic profit.
45. b. incurring losses.
Shut down of firm occurs where price of firm is equal to the firm's AVC but in this case AVC of firm is somewhat higher than the price of the product. So, in this situation firm is not able to cover all of its variable cost. As a result, firm incurs loss.
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